Puerto Rico Bankruptcy Storm Heading for Mainland America

Jesse Hathaway is the managing editor of the Budget & Tax News Heartland publication. Before joining the Heartland Institute, Hathaway worked for Media Trackers, a conservative non-profit news organization active in 5 states. His investigatory research has appeared in local, state, and national publications including The Daily Caller, Drudge Report, and the Cleveland Plain Dealer.

The Financial Oversight and Management Board for Puerto Rico, a federal board tasked with managing the island commonwealth’s course out of fiscal emergency, declared failure on May 3, filing paperwork to begin court proceedings restructuring the government debt.

It’s easy to see why: Prospects for prosperity on the island are dismal. In March, 115 out of every 1,000 Puerto Rican adults were unemployed, an unemployment rate of 11.5 percent, according to the U.S. Department of Labor’s Bureau of Labor Statistics. Of the 880,800 Puerto Ricans who had jobs, about one out of every four individuals were employed by the government, and about 1.37 million people receive food stamps from the federal government.

In other words, there are many more “takers” than “makers” on the island.

One of the causes of Puerto Rico’s meltdown is the excessive cost of doing business in the territory, leading to crippling dependency on government handouts.

The litany of mandatory fringe benefits for employees, treated as bonuses elsewhere in the United States, encourages businesses to relocate to other states, because labor costs exceed the value of employees’ productivity.

Puerto Rico is a precautionary lesson for states that are pursuing similar policies. States such as Connecticut have taken on a massive amount of public debt. Adding up the cost of postponed payments to pension and health care programs, public bonds, government deficits, and spending liabilities, Constitution State lawmakers have racked up about $36 billion in debt, or about $10,025 per person in the state.

Unsurprisingly, many Connecticut residents are deciding to become ex-residents, moving to regions with friendlier tax policies. Between July 2015 and July 2016, 29,880 more people packed up and left the state than moved in.

As demonstrated by Puerto Rico and Connecticut, higher taxes chase away new business investments and encourage companies and entrepreneurs to leave. They also incentivize other people to move to states with a better tax environment, because of the lack of available jobs and high levels of public debt.

It may be too late for the Island of Enchantment, but it is not too late for states to stop treating taxpayers like ATMs and to start enacting pro-taxpayer, pro-growth reforms that encourage in-migration and economic prosperity.